Institute of Islamic Banking

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Browsing Institute of Islamic Banking by Author "Abubakar, Muhammad"

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    Product development as liquidity management tool in Islamic banking; Pakistan case
    (University of Management and Technology Lahore, 2016) Abubakar, Muhammad
    Liquidity Management is considered one of the biggest challenges faced by Islamic Banking. Due to prohibition of Riba (Interest), Gharar, Haram and sale of debts at profit, Islamic Banks have very few liquidity management tools in contrast to conventional banks and hence Islamic Banking Industry of Pakistan is presently facing excess liquidity problem. According to State Bank of Pakistan (SBP) report conventional bank’s daily average of excess cash over & above required CRR for period of 20 November 2015 to 03 December 2015 is Rs 2,261 million (SBP, 2015). While the daily average of excess cash over & above required SLR is Rs 14,276 million for Islamic banks which are just 12% of total banking industry of Pakistan. It clearly depicts that the existing contract used by IBs for the disposal of excess liquidity are not sufficient, Islamic Banks need more sophisticated products for financing, Investments and for Treasury Management purpose. (SBP, 2015) This study focuses on the instruments which can be helpful for the Islamic banking industry to get rid of the liquidity problem, for the purpose, a research questioner was filled by the participants. It is evident from the research findings that nature of Islamic Banking contracts is more likely to be trade oriented in line with true spirit of following Islamic teachings “And Allah has permitted trading and prohibited riba. (Al-Baqra)” Study also suggest that product development is the only way to get rid of excess liquidity in more profitable way, IBs should take active part in trading & real estate activities and avoid usage of agency as underlying agreement. SBP in its strategic plan for Islamic Banking (2014-2018) also emphasizes on same aspect. Research also clarifies that recommended product development will encourage the society to transform form conventional to Islamic Banking through offering higher Halal return on savings.